With new tech, Texas looks to crack down on Medicaid fraud

By J. David McSwane | Cox Newspapers

Published 5:00 pm, Saturday, August 16, 2014

AUSTIN, Texas -- There is no shortage of data available to health care fraud investigators, yet the booming business of defrauding state and federal programs such as Medicaid and Medicare accounts for tens of billions of dollars in lost taxpayer money each year.

The culprit, experts say, is a classic bureaucratic dilemma. States collect information about patients, providers and procedures faster than it can be analyzed -- if it is at all. Some data go here, some there, and often the dots trailing fraud schemes aren’t connected.

In the hands of fraud investigators trained to build cases on months or years of paperwork, bills and receipts, data sets that could theoretically identify fraud have proved more taunting than useful.

Texas is leading the way in changing that with new software that officials say has already helped identify more than $42 million in Medicaid fraud that would have previously gone unnoticed. The Texas Health and Human Services Commission awarded a $19.8 million contract to 21 CT, an Austin-based network security and fraud detection company, to build the software.

”I want to make the business of defrauding health care in Texas unprofitable for the fraudsters,” said Kyle Flaherty, 21 CT’s vice president for marketing.

From a conference table in the company’s third-floor suite looking out on Northwest Austin’s hills, Flaherty demonstrated Torch, the program the company debuted at a national Medicaid fraud conference in San Antonio last week. With just a few clicks on a laptop, Torch can identify outliers and trends almost instantaneously, he said.

In lay terms, Torch could be described as a software monster that consumes data from myriad sources -- the state’s health care system, federal data, physician data, business records, background checks and even Google maps -- information that wasn’t necessarily meant to work together. Torch digests the information, linking relevant data, then spits it out onto a screen that is meant to work as easily as Google.

The data can be queried, but it also runs analytics in real time, allowing investigators to spot trends they hadn’t considered.

Therein lies the key selling point, company executives say: You don’t need to be a data expert to use Torch, freeing investigators to follow their intuition while the software pulls in evidence.

With just the name of a doctor, the program can identify the Medicaid billing history, including the type of procedures billed, and produce a social network analysis to illustrate the doctor’s connections based on business addresses, tax IDs, vehicle records and bank accounts.

Often the visuals tell the story, Flaherty said. Using Torch, investigators have found networks of seemingly unconnected doctors linked by a single node -- a bank account number, for instance. The program can also discern whether doctors are billing for obscure procedures, a common method for cloaking bogus or unnecessary procedures.

”The data’s been there,” Flaherty said. ”It’s the combination of software and human intuition that gets us there.”

Since January 2013, a version of Torch has been used by the Office of the Inspector General for the Health and Human Services Commission, the state agency that manages the roughly $28.3 billion in annual Medicaid spending -- about half of which comes from state tax dollars, according to 2012 figures from the Kaiser Family Foundation.

Inspector General Douglas Wilson said that between January 2013 -- when investigators began flowing some 2.7 terabytes of data into Torch -- and March 2013, the software identified several cases that have resulted in settlements or successful criminal prosecutions, while others are still being investigated.

”It allows us to find the unknown unknowns,” Wilson said, noting that previous data systems used by his office were only useful in tracking fraud that investigators already knew about. ”The Torch system allows us to sort of pull the string and find out why.”

Investigators using Torch have also stumbled on about $83 million in possible fraud in Medicare, the federal medical insurance system for those 65 and older -- details Texas forwarded to U.S. officials, Wilson said.

”As opposed to them funneling us leads,” he said, ”we’re funneling them leads.”

Irene Williams, chief executive of 21 CT, said fraud investigators in other states are looking into following Texas’ lead.

”People look up to and admire what the state of Texas is doing,” Williams said. ”It’s becoming the model.”

State officials, citing security concerns, at first refused to release any details of 21 CT’s contract, which the Austin American-Statesman requested under the Texas Public Information Act. Later, officials provided a heavily redacted copy of the contract that did little to illuminate how much Texas is paying for specific services. Seemingly mundane details like dollar amounts on purchase orders or delivery dates were blacked out.

The total contract with the company is for $19.8 million, with some of the money coming from federal matching funds, said commission spokeswoman Linda Edwards-Gockel.

Records kept by the Texas comptroller’s office indicate the company has been paid at least $16.8 million.

Novel as Torch may be to the health care industry, the underlying concept of finding relationships in disparate data is fundamental to the way companies such as Amazon track customers and their orders, preferences and payments. The technology has been on fraud investigators’ wish list for years, but problems with data -- each state inputs, gathers and processes it differently -- and lack of expertise have been monumental obstacles.

Though it remains to be seen how much fraud can be thwarted by programs like Torch, 21 CT might have found at least a partial answer to fraud investigators’ prayers, said Frank Scafidi, public affairs director for the National Insurance Crime Bureau, a nonprofit that investigates fraud for insurance companies.

”This technology that you’re addressing, if it can bring all that together and show things -- those indicators or red flags -- it quickly delivers a point of focus for an investigator, so they don’t really have to spend a lot of time connecting all those variables,” Scafidi said. ”It sounds like a good, useful development.”

Scafidi, a former FBI fraud investigator, said criminals have been able to stay one step ahead of investigators who were awash in data yet lacked the expertise or technology to apply it.

”We had so many different databases, we didn’t know what the hell was in there,” he said.

J. David McSwane writes for the Austin American-Statesman. E-mail: dmcswane(at)statesman.com.